EUR/USD: traders optimistic at 1.0750 amidst renewed USD selling

• EUR/USD posts decent gains and trades near 1.0750.
• German 10-year bund yields target the 1.30% region on Monday.
• The dollar looks offered amidst firm appetite for riskier assets.

The European currency trades in an upbeat mood and pushes EUR/USD back to the mid-1.0700s at the beginning of the week.

EUR/USD bolstered by risk appetite trends

EUR/USD leaves behind Friday’s downtick and looks to resume the upside in a context dominated by the re-emergence of the selling pressure around the greenback.

Indeed, yields on both sides of the Atlantic move higher, with the German 10y bund yields flirting with the 1.30% level for the first time since April 2014 and its US counterpart slowly approaching the key 3.00% barrier.

The euro docket is empty on Monday and only a short-term bill auction is due later in the NA session.

What to look for around EUR

The recent upside momentum in EUR/USD has been capped by the 3-month resistance line around 1.0770.

The pair’s recovery since mid-May has been on the back of supportive ECB-speak, which continued to point at an initial rate hike as soon as in July, while the consensus view that the bond-purchase programme should end at some point in early Q3 has also lent legs to the European currency.

Renewed selling of the greenback has also contributed as investors appear to have already priced in a couple of 50 bps rate hikes at the Fed’s June and July gatherings.

EUR/USD is still far from exiting the woods, however, and it is expected to remain at the mercy of dollar dynamics, geopolitical concerns and the Fed-ECB divergence, nevertheless, higher German yields, persistent elevated inflation in the euro area and a decent pace of the economic recovery in the region are also supportive of an improvement in the mood around the euro.

Key events in the euro area this week: Germany Construction PMI (Tuesday) – Advanced EMU Q1 GDP Growth Rate (Wednesday) – ECB Interest Rate Decision (Thursday).

Eminent issues on the back boiler: Speculation of the start of the hiking cycle by the ECB as soon as this summer. Asymmetric economic recovery post-pandemic in the euro bloc. Impact of the war in Ukraine on the region’s growth prospects.

EUR/USD levels to watch

So far, spot is gaining 0.24% at 1.0743 and faces the immediate up barrier at 1.0786 (monthly high May 30) seconded by 1.0936 (weekly high April 21) and finally 1.0959 (100-day SMA). On the other hand, a breach of 1.0627 (monthly low June 1) would target 1.0532 (low May 20) en route to 1.0459 (low May 18).